Azonto Petroleum. 'Onto better things. Gazelle new resource estimates underlie value. Management seeks greater prizes

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1 Azonto Petroleum 'Onto better things Initiation of coverage Oil & gas In its previous form, the company had a turbulent 18 months from mid to the end of Recently renamed, with a new management, a strong industry partner and an initial development project progressing towards FID, Azonto shares have a valuation foundation. Its relationship with Vitol and net 25% share in CI-202 (assuming state back-in) gives longer-term upside given existing contingent resources as well as a number of large prospects (up to 230mmboe). Management, well known to the E&P space, has stressed its desire to grow Azonto in the coming years. Our valuation, based on Gazelle development only and assuming a Q414 FID, is 1.30p/share. Drilling of contingent resources such as Addax or prospective resources such as Arius could add to this. Year end Revenues (A$m) EBITDA*(FRS) (A$m) PBT*(FRS) (A$m) Net cash (A$m) Capex (A$m) 12/ (10.5) (11.2) 30.3 (92.8) 12/ (173.0) (172.1) 9.4 (21.1) 12/14e 0.0 (7.3) (7.5) 5.0 (0.6) 12/15e 0.0 (7.7) (8.3) (21.7) (18.8) Note: *PBT and EBITDA are is as per company disclosures, and not normalised. 6 June 2014 Price 1.1p Market cap 13m A$1.03/US$: US$1.69/ Net cash March 2014 A$9.9m Shares in issue 1,156m Free float 89% Code AZO/ APY Primary exchange ASX Secondary exchange AIM Share price performance Gazelle new resource estimates underlie value The May 2014 CPR reduced the estimated contingent gas resource at Gazelle from the previous (January 2013) volume, but the value implied still provides a solid foundation to Azonto shares. We expect first gas 18 months after FID, and therefore first revenues from Gazelle should start flowing in mid In itself, however, Gazelle is not a company maker; follow-on developments at other contingent fields (most likely Addax in our view) or successful exploration (such as the 250mmboe, oil-prone Arius) could increase value materially over time. Management seeks greater prizes Existing assets could be exploited to release value, not least appraisal assets such as Addax, or exploration of Arius. With a new management and with a strong relationship with Vitol, Azonto should be well placed to make future deals in Africa. Though there is no shortage of oil companies seeking to pick up assets, we see Azonto s experience and nimbleness as a relative strength. Valuation: Core NAV is 1.30p/share for Gazelle Gazelle s development, which we currently risk at 65%, gives a solid foundation to the shares, and its contribution should grow over time. Recycled cash from Gazelle should help fund future developments, though the company may choose to do deals before then to fund new opportunities or accelerate exploration. March cash (A$9.9m) should last the company for the next 18 months or so. Importantly, it could add an exploration/appraisal well in assets such as Addax or Arius, either of which could add well over 1p/share to this valuation once announced (possibly in Q414), while there is also the opportunity for inorganic additions. An ongoing farmout process may also result in drilling opportunities in Ghana in 2015/16. % 1m 3m 12m Abs (10.0) (40.0) (51.4) Rel (local) (9.6) (39.6) (56.3) 52-week high/low (A$) 2.37p 1.10p Business description Azonto is an ASX- and AIM-listed company with assets in Cote D Ivoire and Ghana, West Africa. It is currently progressing development of the Gazelle gas condensate field in partnership with Vitol. Next event Gazelle FID Analysts Q414 Will Forbes +44 (0) Ian McLelland +44 (0) oilandgas@edisongroup.com Edison profile page Azonto Petroleum is a research client of Edison Investment Research Limited

2 Investment summary Company description: Onto better things Azonto Petroleum is the new name of Rialto Energy and this is far more than a cosmetic change. With a new management and partnership with Vitol, Azonto now stands as a renewed company. Core development of Gazelle, a 92bcf (p50 contingent) shallow offshore gas field, provides valuation support for the company, while future returns for investors will be largely based on management s ability to leverage its expertise in follow-up developments and inorganic additions. Exploration in the block could be material with a number of prospects of over 150mmboe, of which many are more liquids-biased than Gazelle. Partnership with Vitol, through the Vioco JV, provides financial muscle and expertise in development. Valuation: Gazelle provides foundation of 1.30p/share Gazelle is a 92bcf field (gross, P50), of which Azonto, through its Vioco JV with Vitol, holds a c 25- net 35% interest. With first production expected in mid-2016, the project gives the company a valuation foundation. Our core NAV of 1.30p/share only includes Gazelle, taking into account current cash and G&A. For investors however, Azonto is a vehicle to leverage the surrounding appraisal and exploration possibilities. We do not currently include contingent resources of Addax, Hippo and Bubale, as there are no formal plans to develop these, though the option exists once Gazelle is confirmed. Indeed, a decision to pursue these developments could come later in the year, and once announced, we would expect to include the well(s) in our RENAV. Importantly however, this decision will consider whether the company seeks to develop the relatively small, contingent resources surrounding Gazelle (e.g. Addax) or targets more valuable, larger liquids-biased exploration elsewhere in the block (e.g. Arius). As an example, our modelling indicates US$16/boe for the 14mmboe Addax field and around US$8/boe for the 230mmboe Arius. Taking into account prospect size and CoS, exploration could be favoured, although the availability of a drilling rig (onsite for Gazelle) could well mean shallower contingent targets are drilled first. We will not include Ghana exploration value until a farm-out is executed, but a risked, illustrative 400mmboe field could be worth over 1.5p/share. Financials: A$9.9m as at March 2014 Gazelle development is anticipated to be funded through a US$50m loan from Vitol to Vioco and $110m of bank debt, though no agreement has yet been made with banks. With cash as at March 2014 of A$9.9m, the company can fund SG&A for around 18 months, but will have to look for other sources of capital for any future exploration or development. We expect the sizeable prospects in the CI-202 block and possible exploration in Ghana to be funded through farm-outs. Exploration and appraisal in CI-202 could be material for Azonto, with Gazelle providing a hub for future development. The January 2013 CPR identified gross contingent resources of 72mmboe, though with exploration prospects such as Arius in the block, the company may prioritise exploration instead, as returns from a 227mmboe, 92% oil prospect are probabilistically larger, even after farming-down to fund drilling. Sensitivities: Gazelle is critical Development of Gazelle is critical to the future of the company and our valuation. We expect FID of Gazelle to be taken in Q414, with first gas after around 18 months in mid Before this is possible, a gas sales agreement has to be confirmed and a third-party pipeline funded and built. FID is critical and would be a major de-risking event, and one that the company is working hard to reach. Azonto Petroleum 6 June

3 Partnership with Vitol to form Vioco On 8 November 2013, Azonto completed a farm-down of its CI-202 asset in Cote D Ivoire. In the deal, Vitol agreed to provide US$50m of loan capital for investment in return for a 65% share of Vioco, a joint venture between Azonto and Vitol. Vioco holds an 87% participating interest in the PSC (or 71% if the government exercises its back-in right of a further paying interest of 16%). Azonto therefore holds a 35% stake in a 71-87% interest in the CI-202 block, or 25-30%. The US$50m accrues interest of 7.5% and Vitol will receive an increased stake in cash flows from production until the loan is repaid (though Azonto get a proportion of the interest too). This farm-down reduced the equity stake in CI-202 materially. However, we see the deal terms as a consequence of previous management and not that of the current team. Azonto had very little negotiating power poor decisions of previous management had left the company with a large rig contract liability (which the management was able to reduce by one-third to a US$11.6m payment) and no means to pay for development of the assets. Substantial dilution would have had to take place, either through equity issuance or industry farm-down. Azonto did well to bring a partner of the scale of Vitol on board. Regional and asset geology CI-202 is in the Ivorian basin (offshore Cote D Ivoire and Ghana), one of many along the West African rifted margin. Neighbours include Total, Vitol, Afren, Genel and Lukoil among others. The Gazelle field was discovered in 1977 by Esso and tested a mixture of gas and oil over a number of tests. A total of seven appraisal wells were drilled in with Esso drilling three. Pre-2012 wells were drilled on 2D data, but a high-quality 3D data set is now available and interpreted by RPS. The report gave a revised hydrocarbons-in-place figure, lower than the 2012 estimations. 2C contingent resources have fallen to 92bcf from 142bcf, while condensate has fallen to 1.8mmbbl from 3mmbbl. The Gazelle field is a combination structural/stratigraphic trap within a Cenomanian/Turonian channel sequence. The reservoir sequences consist of inter-bedded sandstones, siltstones and shales, and as such the field is characterised by multiple stacked reservoirs. Data from the three Rialto-drilled wells, P3-ST1, ST2 and P4 together with the D seismic have given a clearer picture of the field; however, the reservoir geometries remain complex. The major change in the interpretation of the reservoirs post the drilling and seismic data acquisition is the identification of the largest sand LC4 as a separate channel cross cutting the smaller LC2 section. Vioco has elected to concentrate on developing the largest sand bodies, LC4, LC1 and UC5. With no GWC (Gas Water Contact) determined to date in LC4, there is significant upside potential here if the contact is shown to be deeper than the P50 case, with the high-case GIIP almost three times greater than the best-case scenario. UC5 will be produced from the recompletion of the existing P4 well while LC1 will be produced through a new deviated well. LC1 will be produced from a well with a 1km horizontal section through the reservoir and designed to maximise the well distance from the GWC. Production from LC1 will be monitored through permanent downhole gauges installed in the well, and data gathered here will be used to monitor reservoir dynamics and optimise reservoir management. Azonto Petroleum 6 June

4 Exhibit 1: Gazelle development only requires two new wells and one recompletion Exhibit 2: Surrounding discoveries could benefit from a regional hub Source: Azonto Source: Azonto Gazelle development concept The current offshore component of the development is still under discussion, but will likely use two new wells with one re-completion directed through a small unmanned wellhead platform with four slots for dry trees. Gas will then be transported onshore for processing. Onshore gas processing facilities could be expanded to take any future development of other gas fields. Once processed, it s currently envisaged that Vioco will sell the gas at the plant outlet to the State power utility (CI-Energies) for onward transport by a new pipeline to Abidjan, where the thermal power plants are located. Once built, we understand that the new pipeline could also cater for the supply from a floating LNG gasification unit and / or gas from Ghana. Azonto recently advised that progress on the pipeline has been slower than anticipated and we understand that Vioco are in discussions with CI-Energies regarding a potential interim solution, eg local power generation. It is envisaged that the first gas will flow 18 months after FID, which we currently expect in Q414. Hub opens up multi-step value realisation potential Exhibit 3: Projected Gazelle production, gross Exhibit 4: Gross production of CI-202 could increase boepd 10,000 8,000 6,000 4,000 2, Gas Oil Condensate Gross Production, mboed Hippo Addax Bubale Gazelle Source: Azonto, Edison Investment Research Source: Edison Investment Research. Note: Further developments other than Gazelle are illustrative at this time. Timing of developments are modelled to be based on cash flow availability to recycle to development. Azonto Petroleum 6 June

5 The Gazelle development is a profitable enterprise on its own. The project however, through tapping Cote D Ivoire s gas markets, opens up the possibility of follow-on investments for Vioco s other prospects. Gazelle follow-up probabilities point to markedly higher returns for exploration over contingent development The January 2013 CPR listed notable targets for follow-on developments. Contingent resources at Bubale, Addax, Hippo could be developed, though the larger targets in the prospective category may be better objectives. Further work performed on the seismic data since the CPR (and by new personnel) could illuminate and re-order the prospect inventory. Until we receive further details from the company, we would expect Arius to be under serious consideration given its size and liquids content. However, all of the prospective targets are bigger than Gazelle (and most a degree of magnitude larger). The balance clearly has to be made between exploiting smaller, lower-risk contingent resources and exploring for more material prospects. We have assumed that the company will fund drilling through farming-down, leaving it with 40% of its current holding. If Exhibit 5 is a fair reflection of the underlying risks, the balance would presumably tilt towards exploration of the notably larger prospects (gross risked volumes for Arius are more than three times the total Gazelle volumes, while liquids contents and therefore values are substantially greater). Exhibit 5: Contingent and prospective resources Field/prospect Distance from Gazelle Gross P50 estimate Gas Oil Total % liquids GCoS Gross risked km mmscf mmbbl mmboe % % mmboe Gazelle Gas (Shallow) % 17.1 Bubale (Shallow) Canyon fill % 14.5 Addax (Shallow) % 14 Hippo (Shallow) Canyon fill % 8.7 Gazelle Oil (Shallow) % 3.1 Total contingent % 57.4 Prospective resources Arius (Deep) Up-dip and down-dip of tested % 22% 50 oil/gas Chouette East Canyon fill % 16-23% Condor (Shallow) % 13-27% Faucon (Shallow) % 23% 27 Hippo North (Shallow) Canyon fill % 38% 15 Total prospective 1, % Source: Edison Investment Research, Azonto Multiple discovered, undeveloped fields in the vicinity Looking at the bigger picture, offshore Cote D Ivoire (and West Africa) is replete with undeveloped discoveries. Gazelle development opens up not just infrastructure, but establishes expertise, markets and customers ready for stranded discoveries. Gazelle is effectively therefore a playopening development for Azonto. There are many undeveloped gassy fields in the vicinity of CI-202, which could be exploited over the coming decades, including Belier Outpost (20mmboe), Kudu (207bcf), Eland (95bcf). We caution that none are owned by Azonto/Vioco and there are many hurdles to cross before any progression of these fields. Azonto s gas strategy pivots on strengthening African demand Oil/liquids discoveries are likely to be commercial at even small sizes, due to the transportability of oil, but many gas discoveries in Africa have effectively been stranded due to lack of markets, while Azonto Petroleum 6 June

6 environmental regulations mean that an oil discovery still may not be developed due to issues in the gas offtake. The lack of gas markets is changing however, with Gazelle a good example. Cote D Ivoire is a regional exporter of electricity (supplying Ghana, Burkina Faso, Benin, Togo and Mali), importing fuel oil. According to Azonto, the country s gas deficit is currently around 80mmscfd, which could expand to over 100mmscfd as new power station generation comes online (200mmscfd at maximum capacity). There is therefore a need for more gas, which the Gazelle field could go some way to alleviate (we forecast initial production rates of 47.5mmscfd from 2016), but not fully solve. For example, part of the development concept for Gazelle includes the use of a pipeline also planned to pipe re-gasified LNG. There is therefore demand depth for future gas developments in Cote D Ivoire, which should support strong pricing (given LNG import prices). Azonto s current hub strategy should exploit the increasing gas demand that should accompany continued economic growth of its markets. Looking on a wider scale, African gas deficits have grown in recent years driven by strong economic growth, which many expect to continue (the African Economic Outlook expects GDP growth to be around 9.8% in 2014). This will continue to require development of gas fields, many of which have been discovered but not developed. Exhibit 6: African gas supply/demand balance (excluding Algeria, Egypt, Libya and Nigeria) Exhibit 7: Cote D Ivoire GDP growth vs Africa bcf Gas Production Gas consumption Gas deficit Real GDP Growth (%) 12.5% 10.0% 7.5% 5.0% 2.5% 0.0% -2.5% -5.0% -7.5% Real GDP growth (%) Africa - Real GDP growth (%) Western Africa - Real GDP growth (%) Source: BP Source: Note: 2013 and 2014 figures are forecasts. Green bar represents Cote D Ivoire. Ghana Following the disappointment of the Starfish well (gross sandstone intervals of 230m were encountered although these were found to be water wet; a second target was also unsuccessful), Ophir and TAP Oil have decided to withdraw from the contractor group, leaving Azonto and its partner (Afex Ghana) with increased working interests. Azonto holds a 57% interest in Azonto Ghana (Vitol holds the remaining 43% interest following the transaction made in mid-2013), which now holds a 45% participating interest (50% paying interest) in the Accra Block. Azonto therefore holds a 26% net participating interest in the Accra block. The block covers a gross area of 2,000km 2 in 20-3,000m of water. Work performed by the company since the Starfish well suggests further prospects in shallow water syn-rift Albian plays and in deeper Cenomanian/Turonian turbiditic and hinge-line plays. This analysis has focused on the Sealion complex with a number of structural and stratigraphic traps in water ranging from 1,650-1,800m deep. This work has culminated in the identification of five horizons, totalling gross unrisked P50 resources of 2.2bn boe. As a result of this significant potential, Azonto and Afex are seeking partners to fund future exploration. A decision has to be made before 23 September 2014 on Azonto Petroleum 6 June

7 whether to extend the licence into a further exploration period with work commitments we do not expect the company to drill without partners to carry any exploration. According to IHS, applications have been made by Shell / Tullow and Hess for acreage adjoining the Accra block, so we would expect that Azonto will see good interest in a potential farm in, although completing a transaction is a different matter. We do not include any value in our RENAV for Ghana although wells (if drilled) will be spudded in the next two years, the campaign is wholly dependent on the successful farm-out of the acreage to gain a drilling carry. However, for illustrative purposes, we have modelled a 400mmboe discovery (75% oil: 25% gas), with first production in 2022 at $5/boe. Assuming a 30% WI to Azonto Ghana (16% net to Azonto) and 10% CoS (reflecting GCoS and dilution/commercial risking, a risked valuation would be over 1.5p/share. We expect to do further work as and when a farm-out is executed. Management Over recent years, the company s management has been overhauled, with a new CEO/CFO and technical team. The deal made with Vitol, though dilutive, was a result of the severe financial stress the company was in after poor decisions made by previous management. We expect management to work from the firmer foundation that Azonto is now on to grow over time. Management is keen to stress that they are not lifestyle managers. Non-Executive Chairman Andrew Bartlett has over 30 years of experience in oil and gas. Mr Bartlett was global head of oil & gas project finance and mergers and acquisitions at Standard Chartered Bank until July He helped to establish Shell Capital, a private equity/mezzanine debt group set up by Shell to finance small producers in emerging markets. Prior to joining Shell Capital, Mr Bartlett worked for Shell as a petroleum engineer and development manager. He is an NED of Eland Oil & Gas and advises Helios Investment Partners. Chief Executive Officer Rob Shepherd was previously finance director of AIM-Listed, Africafocused Dominion Petroleum, which was acquired by Ophir for c US$220m in Mr Shepherd has held positions with Imperial Energy (non-executive director, ) and was a senior VP of emerging markets at ABN AMRO. Chief Financial Officer Andrew Rose has over 10 years experience as CFO of small E&P companies. From , he was CFO of Burren Energy, playing a key role in its IPO and eventual sale to ENI. From he was CFO of AIM-listed Gulfsands Petroleum. Prior to 2001 he spent 20 years as an investment banker in London, culminating as co-head of corporate finance for Emerging Europe, Middle East & Africa at Société Générale. Sensitivities Azonto s earnings and valuation are sensitive to a number of macro factors, not least the current and future oil and gas prices. As an E&P, it is exposed to the normal geological/technical risks inherent in oil exploration. Apart from these, we highlight the following as major risks: Asset/development risk: The bulk of Azonto s value lies in its share in the development of the Gazelle field. If Gazelle development is discontinued or delayed, it could lead to a material reduction in the value of the company. Gazelle is dependent on the sales of the gas through a pipeline in Cote D Ivoire that Vioco does not control and which has not yet been built. Without a gas pipeline, Gazelle development cannot go ahead as currently envisaged. Azonto Petroleum 6 June

8 Market/commodity risk: Development requires a market for the gas/oil. The MoU governing the gas sales agreement provides for a fair price to be set which gives the company an IRR of 15% for the P90 reserves, giving comfort on the profitability. Deal risk: The management is actively looking to expand the company s portfolio, which is likely to be funded by equity. This could lead to an increase in share count, though the directors are experienced oil and gas operators, which should mean deals they propose should be accretive. Funding risk: Azonto s recent history has been marked by financial stress. New management has brought a much tighter focus, but the company does not have a large cash position and will need to turn to the equity market to fund any deals, though Gazelle should generate free cash by Valuation Summary of assumptions/methodology We value oil companies with an asset-by-asset NAV derived from detailed DCF modelling. Our valuation includes production, development and contingent resources that could be developed, while exploration is valued only if there is a plan and resources to drill in the next months. We apply a risking to this value, which aims to take account of geological, technical and commercial uncertainties. Our overall chances of success applied may therefore be materially lower than any geological CoS to account for these factors. We draw attention to the risking of the exploration prospects. If a discovery is made as prognosed, we believe our risk factor would increase to around 50% for that field as the various stages of development (declaration of commerciality, development funding, FEED, FID, construction and commissioning) would still lie ahead. We therefore multiply the CPR GCoS by this number to arrive at our current risking. We apply a 65% CoS for Gazelle our typical risking for pre-fid projects. For commodity pricing, we assume US$80/bbl long-term inflated for Brent (after a fade from current levels), while we use local gas prices where appropriate. In this case, we assume US$8.4/mcf for gas for the first four years and US$5/mcf thereafter. We assume the government exercises its backin right and that prospective resources (such as Arius and Chouette East) are farmed down so that Azonto holds 40% of its current holding. We do not include either Ghana in our valuation due to any wells being beyond our valuation timeframe. We will look to revise our position as and when targets are disclosed, partners and funding identified and timings firmed up. Valuation of NAV supports current share price Under this framework, we value Azonto s core portfolio at 1.30p/share. Further value could be ascribed in time from existing contingent resources in Addax, Hippo and Bubale, though there is currently no detailed plan to develop these resources, and we therefore exclude them. Exhibit 8: NAV summary Asset Recoverable reserves Net risked Value per share Country Diluted WI CoS Gross Net NPV/boe value Risked Unrisked % % mmboe mmboe US$/boe US$m p/share p/share Net (debt)/cash June 2014e NPV of 18months of G&A* (9.0) (0.48) (0.48) 2014 exploration Development Gazelle P50 Cote D'Ivoire Core NAV Source: Edison Investment Research. Note: We assume that Petroci does back-in to the Gazelle development. *We believe further drilling prospect(s) should be announced by year end, which should be drilled within months. As a result, we have reduced the G&A part of the NAV to 18months, rather than our standard two years so as not to overly-penalise the company. However, once a target is announced (and included in our RENAV), the G&A charge will revert to a standard two year timeframe. Azonto Petroleum 6 June

9 Rationale for investment rests on Gazelle foundation Our valuation rests on the development of the P50 volumes of Gazelle, with other assets excluded at this time. There are a number of ways that we can see investors realising gains over time. The value of Gazelle should increase as the development is progressively de-risked and production cash flows near. Gazelle s free cash flow, which we model to start in 2017, coincides with the peak of Gazelle NAV. However, much of the free cash generated by Gazelle will be taken up by corporate G&A and development costs, limiting the cash accrual in the listed parent and thereby damping the value increase in future years. This does, however, produce a base from which further growth opportunities can be launched. Exhibit 9: Growth of Gazelle-based company NAV over time 5.0 Value per share (GBp) Gazelle P50 Indicative NAV/share Share price Source: Edison Investment Research Note: This assumes a reversion to a two year G&A value in 2015 Exploration/appraisal of nearby fields/prospects We know that the development of Gazelle will require a drilling rig onsite in 2016, and it therefore makes sense to use this for any further exploration/appraisal work elsewhere. As fields such as Arius are too deep for the Gazelle rig (they would require a semi-sub), this means Bubale/Addax and Hippo are possible follow-ups for this strategy. An announcement on the drilling of these targets could come as early as Q414, and at this point we would expect to include these prospects in our RENAV. The table below gives details of prospect size and possible valuation additions in the event that they are included. We stress that only one or two can be expected in the near term. Exhibit 10: Contingent/prospective resources Asset Recoverable reserves Net risked Value per share Country Diluted WI CoS Gross Net NPV/boe value Risked Unrisked % % mmboe mmboe US$/boe US$m p/share Bubale Cote D'Ivoire Addax Cote D'Ivoire Hippo Cote D'Ivoire Potential exploration Arius Cote D'Ivoire Chouette East Cote D'Ivoire Condor Cote D'Ivoire Faucon Cote D'Ivoire Hippo North Cote D'Ivoire Source: Edison Investment Research, Azonto. Note: For prospective resources, we apply a 50% commercial chance of success to account for uncertainty. Bubale, Addax and Hippo NPVs are DCF derived. For others, we assume a 60% reduction in equity for funding of these, similar to company guidance. Our estimations for Chouette East, Condor, Faucon and Hippo North are discounted values referencing the values of Hippo and Arius; they have not been individually modelled. Azonto Petroleum 6 June

10 Valuation sensitivities Petroci back-in We assume that Petroci exercises its right to back in to the Gazelle development for a non-carried 16% interest - this is not certain. Should Petroci not back-in, our Core NAV would increase from 1.30p/share. However, under this scenario, the joint venture would have to raise $30m more capital for the development, which could require further equity financing from Azonto (to Vioco) should bank debt not be sufficient. The increase to 1.42p/share does not take into account any potential dilution. Discount rate Varying the discount rate has a material effect on valuation, with a reduction from our assumed 12.5% to 10.0% increasing value by around 20%. We do not assess changes in gas prices, as initial prices are set as part of the PSC while outward years have relatively minimal effect (although would affect future developments beyond Gazelle if gassy). Exhibit 11: Effect of discount rate to Core NAV ($p/share Discount rate 7.5% 10.0% 12.5% 15.0% 17.5% Core NAV Source: Edison Investment Research Impact of delays The development of Gazelle could be delayed from our current assumption (first gas mid 2016), with each year delay reducing our Gazelle NPV by 13% (we assume some ongoing costs). Financials Azonto s March 2014 cash level of A$6.7m (plus a US$3.2m receivable from Vioco) should fund the company for around 18 months of SG&A, but is not enough to fund any significant exploration or deal. Estimated gross pre-production capex is c US$190m. Vioco s share of this is likely to be US$160m (assuming Petroci exercises its 16% paying back-in right, paying US$30m). Accounting for the US$50m loan from Vitol, this leaves US$110m to be funded, which the company anticipates should come from bank debt. No agreements have yet been made with banks, so the ability of the joint venture to raise this level of debt is still uncertain. Initial production should provide the company with valuable cash flows that can then be recycled. Assuming P50 production volumes, we estimate cash flow generation from Gazelle of US$40m in 2017 (before debt repayment). The company has stated that it is seeking to grow the portfolio, combining the depth of experience of the management/board as well as potentially leveraging the relationships with industry players such as Vitol and government relationships with national oil companies. Given the current financial resources of the company, we expect it to require some additional capital prior to the first production of Gazelle, with any acquisitions or new projects requiring more equity capital. Azonto Petroleum 6 June

11 Exhibit 12: Financial summary A$'000s e 2015e December IFRS IFRS IFRS IFRS PROFIT & LOSS Revenue (0) Cost of Sales 0 0 (143) (571) Gross Profit (0) 495 (143) (571) EBITDA (10,510) (173,018) (7,296) (7,725) Operating Profit (before amort. and except.) (10,510) (173,018) (7,528) (7,956) Intangible Amortisation Exceptionals Other Operating Profit (10,510) (173,018) (7,528) (7,956) Net Interest (734) (310) Profit Before Tax (norm) (11,244) (172,129) (7,528) (8,265) Profit Before Tax (FRS 3) (11,244) (172,129) (7,528) (8,265) Tax (87) (129) 0 0 Profit After Tax (norm) (11,332) (172,258) (7,528) (8,265) Profit After Tax (FRS 3) (11,332) (172,258) (7,528) (8,265) Average Number of Shares Outstanding (m) , , ,158.6 EPS - normalised (p) (2.4) (14.9) (0.6) (0.7) EPS - normalised and fully diluted (p)! (14.9) (0.6) (0.7) EPS - (IFRS) (p) (2.4) (14.9) (0.6) (0.7) Dividend per share (p) Gross Margin (%) N/A N/A N/A N/A EBITDA Margin (%) N/A N/A N/A N/A Operating Margin (before GW and except.) (%) N/A N/A N/A N/A BALANCE SHEET Fixed Assets 169,971 43,245 43,466 61,841 Intangible Assets 169,173 12,107 12,652 29,536 Tangible Assets ,791 Investments 0 30,821 30,668 30,514 Current Assets 32,990 15,929 8,180 3,203 Stocks Debtors 1,868 6,406 3,110 3,110 Cash 30,333 9,430 4,978 0 Other Current Liabilities (4,072) (3,606) (3,606) (3,606) Creditors (4,067) (3,606) (3,606) (3,606) Short term borrowings (5) Long Term Liabilities (7) 0 0 (21,662) Long term borrowings (21,662) Other long term liabilities (7) Net Assets 198,882 55,568 48,040 39,775 CASH FLOW Operating Cash Flow (5,934) (19,805) (3,847) (7,880) Net Interest Tax Capex (92,756) (21,132) (606) (18,760) Acquisitions/disposals (0) 5, Financing 83,293 13, Dividends 1,187 1, Net Cash Flow (14,209) (20,903) (4,452) (26,640) Opening net debt/(cash) (44,357) (30,328) (9,430) (4,978) HP finance leases initiated Other Closing net debt/(cash) (30,328) (9,430) (4,978) 21,662 Source: Edison Investment Research, company accounts. Note: Year-end changed to December in December Previous years have been calculated from interim reports by Edison Investment Research. Azonto Petroleum 6 June

12 Contact details 22 Long Acre London WC2E 9LY United Kingdom Revenue by geography CAGR metrics Profitability metrics Balance sheet metrics Sensitivities evaluation EPS N/A ROCE 13 N/A Gearing 13 N/A Litigation/regulatory EPS 12-14e N/A Avg ROCE 12-14e N/A Interest cover 13 N/A Pensions EBITDA N/A ROE 13 N/A CA/CL 13 N/A Currency EBITDA 12-14e N/A Gross margin 13 N/A Stock days 13 N/A Stock overhang Sales N/A Operating margin 13 N/A Debtor days 13 N/A Interest rates Sales 12-14e N/A Gr mgn / Op mgn 13 N/A Creditor days 13 N/A Oil/commodity prices Management team Non-executive chairman: Andrew Bartlett Mr Bartlett has over 30 years of experience in oil and gas, latterly in corporate finance at Standard Chartered Bank and Shell Capital. He is an NED of Eland Oil & Gas and advises Helios Investment Partners. Chief financial officer: Andrew Rose Andrew Rose has over 10 years experience as CFO of small E&P companies, with experience at Burren Energy and Gulfsands. Prior to these roles he was cohead of corporate finance for Emerging Europe, Middle East & Africa at Société Générale. N/A Chief executive officer: Rob Shepherd Mr Shepherd was previously finance director of Dominion Petroleum, which was acquired by Ophir for c US$220m in Mr Shepherd has held positions with Imperial Energy (non-executive director, ) and was a senior VP of emerging markets at ABN AMRO. Principal shareholders (%) Artemis 8.6 Genesis 6.1 IFC 5.5 Standard Life 4.8 Vitol 4.6 Glenn Whiddon 3.8 Companies named in this report Afren, Total, Vitol, Lukoil Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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